Understanding Capital additions

[Jorge De Jesus]

Does anyone have any suggestions on a clear definition or maybe even a list of what could be considered a capital addition? Are these things set or does it vary?

[Michele G.]

Capital additions generally add value or extend the life of the asset. Costs to maintain your property in good condition fall under repairs & maintenance. Usually the larger replacement/maintenance items or additions fall under capital expenditures. The IRS does list some things as capital improvements, but for many expenses there isn’t a strict list to classify an expense as an R&M or CE. You have to decide on a case by case basis. Look at the scope of the work and its effect on the property. Does it extend the useful life of the asset? Does it add value to the asset?  Then it’s likely a capital expense  

For example, I would make the following classifications on my property depending on the cost and scope of the work involved:

Fixing a portion of a roof is a repair, but replacing the roof is a capital expense. 

My weekly gardener is an R&M expense. Hiring him to redesign the landscaping or plant several new trees is a CE. 

Painting a common area wall that has graffiti or chipping paint is R&M. Painting a whole building is a CE. 

Replacing a leaky faucet for $50 is a repair. Replacing all of the fixtures would be a CE. 

Hopefully this gives you an idea of how you might classify an expense, but always check with your accountant. They will be able to properly classify it for you.